The coastal town of Marsa el-Brega, with a population of just 15,000 and located on the southernmost shore of Libya’s Mediterranean Sea coast, does not at first glance appear well placed to become a major economic centre.
But since 1961, when the first barrels of oil were loaded on to ships for export at the town’s port, its fate has been closely intertwined with what has become the country’s most important resource.
The North African state has become one of the biggest oil producers on the continent. Tripoli now wants to turn Marsa el-Brega, along with the town of Ras Lanuf 115 kilometres to the west, into a centre for international oil and petrochemicals firms, transforming the Gulf of Sirte into a globally significant energy hub in the process.
The ambitious $54bn plan is part of a wider programme to overhaul the country’s industrial sector by attracting billions of dollars of foreign investment and creating tens of thousands of jobs.
The plan is being managed by Libya’s Economic & Social Development Fund (ESDF), the state-run body that is also taking control of the country’s downstream oil and gas projects from state energy firm National Oil Corporation (NOC).
The scheme envisaged in the plan, which will be rolled out over the next 15 years, is on a scale most countries would find challenging. But the greatest challenge, according to executives in the energy and finance industries, will be convincing overseas investors to get involved.
“It sounds like a massive project and I am sure that it will be very well planned,” says a senior energy investment manager at one large international bank. “But Libya does not have a great reputation with investors for getting things done.”
Marsa el-Brega and Ras Lanuf are already vital cogs in the country’s often misfiring economy. The two ports handle 60 per cent of Libya’s oil exports, equivalent to about a third of the country’s gross domestic product. Given their strategic importance, it is little surprise that Tripoli put the ports at the centre of its plans to modernise the country’s economy through the development of its energy facilities and the addition of new industrial plants.
“This will be the next big energy city project that people talk about,” says Said al-Hoderi, a senior executive at Libya’s Economic Development Board (EDB), which is also working on the scheme.
The plans date back to July 2007, when the ESDF commissioned US engineering consultant Fluor Corporation to draw up a masterplan to overhaul Ras Lanuf and Marsa el-Brega.
Fluor’s brief was to create two giant industrial clusters based around the oil, gas and petrochemicals industries. The masterplan it has returned will transform the area.
Currently, Sirte Oil Company, a subsidiary of NOC, has a 9,000-barrel-a-day (b/d) refinery at Marsa el-Brega, along with liquefied natural gas (LNG) facilities and plants producing ammonia, methanol and urea.
Further along the coast, Ras Lanuf Oil & Gas Processing Company, another NOC subsidiary, has a 220,000-b/d refinery linked to a petrochemicals plant producing propylene, which in turn is converted into the basic plastic polyethylene.
In the first of three overlapping phases, the capacity of the petrochemicals plants at Marsa el-Brega will be increased by 25 per cent and the LNG plant’s production will almost triple to 550 million cubic feet a day.
At the same time, the capacity of the existing petrochemicals plant at Ras Lanuf will be increased by 50 per cent, and polyethylene capacity by 25 per cent. Production of another basic plastic, polypropylene, will also be added.
Later phases in the 15-year masterplan will give Marsa el-Brega production facilities for polyvinyl chloride pipes, as well as detergents and rolling facilities for reinforcement steel bars for the construction industry.
Ras Lanuf will gain a natural gas liquids unit to provide feedstock for a planned 20-million-tonne-a-year (t/y) petrochemicals operation, along with a cracker and LNG facilities. Plants producing carbon anodes and polysilicon, which are used to make solar panels, will also be built, as will an aluminium plant. Other, non-oil-related industries, such as concrete and ceramics production facilities, are also planned.
The area’s infrastructure will also be upgraded. The airports at both towns will be expanded, new port facilities will be added and 1,560MW of power generation will be made available.
In all, the masterplan envisages the creation of 41,958 jobs through direct employment by 2024, with the population of the towns increasing to a combined 118,500. “These developments are targeted at direct and indirect employment, so that the target growth in population will be achieved, along with the growth of the economic and investment level,” says Anwar Sassi, director for the Marsa el-Brega and Ras Lanuf energy cities at the ESDF.
The plan also includes the construction of 29,000 new homes at Ras Lanuf and Marsa el-Brega and a 5-star hotel resort at Al-Egaila, a village on the road between the two. “It is also about job creation and the development of the tourism industry,” says Sassi.
Libya certainly has great potential as a tourist destination, but its tough visa regulations have stifled the development of the industry and the creators of the masterplan acknowledge it will take time for that to change.
“In order to concentrate on the living standards in the cities, we have emphasised the openness of roads and the sea views,” says Amir Nemr, masterplan project director at Fluor. “The resort will initially be used by locals and expatriates, but hopefully it will grow to attract foreign tourists.”
Attracting foreigners, whether as investors or tourists, is at the heart of the ESDF’s plan. The fund has committed to funding the urban developments and the infrastructure for the industrial developments. But it will only participate as a joint venture partner with international firms, and the latter will be expected to contribute funding as well as technology and expertise.
Sassi says these partnerships will typically allow a foreign firm to take a stake of 40-60 per cent in developments. But this is where the plans may face difficulties, says the senior energy investment manager. Libya only started to open up to Western companies in 2004, when the US and the EU lifted economic sanctions, and remains an unknown entity to many.
To illustrate the perceived dangers, the manager points to Verenex Energy, a Canadian oil exploration company that was bought by the Libyan Investment Authority in September for $304m. The deal came about after Tripoli forced China National Petroleum Corporation to withdraw a $500m offer it had made for the firm. Tripoli invoked a clause in the Canadian firm’s exploration and production licence in the country, which gave it first refusal in the event of a sale. “Things like this really do not help,” says the investment manager.
He adds that oil majors are already cautious about investing in Libya after Tripoli forced several companies to accept a lower share of revenues from the oil and gas they produce in the country. In late 2008 and early 2009, Libya revised its contracts with Italy’s Eni, the US’ Occidental Petroleum Corporation, Spain’s Repsol and France’s Total, among others.
But officials in Libya insist there should be no problems in future. Al-Hoderi says the presence of the ESDF, which focuses on attracting outside investment, will make relations with international investors run more smoothly. His own organisation, EDB, will also work with investors to make Libya more attractive, and that includes relaxing the tax regime, he says.
The Gulf of Sirte energy hub schemes are part of wider efforts to open up the country to international investors.
“Tripoli has already begun implementing reforms, which were recommended to it by investors and by Fluor in the masterplan, and as a result we can confidently say that large petrochemicals and downstream operators have already expressed interest in the project,” says Nemr.
The fact that an international company, Fluor, was responsible for the Gulf of Sirte masterplan is another sign of Tripoli’s apparent willingness to open up its economy. Unsurprisingly, the Fluor executive is confident the plan will come off. “It is a realistic and achievable level of investment that will provide for sustainable development,” he says. “The Libyans are going to make sure it happens.”
The trick will be persuading other international firms it is both realistic and achievable.